TWIN DISC INC 10-K

Item 9A. Controls and Procedures   Conclusion Regarding Disclosure Controls and Procedures   As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report and under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures.  Based on such evaluation, which includes the circumstances around a misstatement as described below, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were not effective as of June 30, 2021 to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.   23     Management ’ s Report on Internal Control Over Financial Reporting   Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.  The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The Company’s internal control over financial reporting includes those policies and procedures that:     1. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company,   2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and   3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on financial statements.   Management has identified a material weakness in internal controls over financial reporting due to a misstatement in income taxes.  The misstatement related to a deficiency in the company’s review controls over significant, infrequent transactions that did not detect an error in the recording of a valuation allowance on deferred income tax assets.  Specifically, the misstatement was attributed to the presentation of the tax effects of a pension plan and the adjusting journal entry to income tax expense.  Due to the isolated, non-recurring nature of this transaction, management had not anticipated the complexity of this process.  This misstatement resulted in the Company filing a Form 8-K/A on August 23, 2021, amending its previously released financial results for the quarter and year ended June 30, 2021.  The amendment was filed to disclose that final income tax expense adjustments related to the domestic deferred tax asset valuation allowance have been recorded by the Company, which resulted in increasing the amount of net loss for the year ended June 30, 2021 by $8.8 million.  This had the effect of increasing the net loss of -$20.9 million to -$29.7 million for the year ended June 30, 2021.  While this late adjustment is a non-cash adjustment, the Company has concluded that it constitutes a material weakness in its internal controls over financial reporting due to the deficiency in certain review controls described above.   To remediate the material weakness, the Company has taken steps to enhance the controls within the tax reporting process, including improving the review precision of adjusting journal entries and to proactively reach out to outside consultants on technical and complex one-off issues such as these, should the need arise.  To allow for adequate time to manage the recording and reviewing of infrequent and complex transactions, the Company also intends to postpone the earnings release date to a date closer to the filing of the Company’s Form 10-K or Form 10-Q. The Company believes that these steps will mitigate the occurrence of similar events in the future.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.   The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework (2013 edition) in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon such evaluation, due to the circumstance around a misstatement as described above, the Company’s management concluded that its internal control over financial reporting was not effective as of June 30, 2021.   RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of June 30, 2021, as stated in their report which appears herein.   Changes in Internal Control Over Financial Reporting   During the fourth quarter of fiscal 2021, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company intends to complete the remediation of the material weakness described within fiscal 2022.     Item 9B. Other Information   Not applicable.   24     PART III   Item 10. Directors, Executive Officers and Corporate Governance   For information with respect to the executive officers of the Registrant, see "Information About Our Executive Officers" at the end of Part I of this report.   For information with respect to the Directors of the Registrant, see "Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.   For information with respect to the Company’s Code of Ethics, see "Guidelines for Business Conduct and Ethics” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference. The Company’s Code of Ethics, entitled, “Guidelines for Business Conduct and Ethics,” is included on the Company’s website, www.twindisc.com. If the Company makes any substantive amendment to the Code of Ethics, or grants a waiver from a provision of the Code of Ethics for its Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer (or any person performing similar functions), it intends to disclose the nature of such amendment on its website within four business days of the amendment or waiver in lieu of filing a Form 8-K with the SEC.   For information with respect to procedures by which shareholders may recommend nominees to the Company’s Board of Directors, see “Director Committee Functions: Nominating and Governance Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference. There were no changes to these procedures since the Company’s last disclosure relating to these procedures.   For information with respect to the Audit Committee Financial Expert, see “Director Committee Functions: Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.   For information with respect to the Audit Committee Disclosure, see “Director Committee Functions: Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.   For information with respect to the Audit Committee Membership, see “Director Committee Functions: Committee Membership” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.     Item 11. Executive Compensation   The information set forth under the captions "Executive Compensation" and "Director Compensation” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 28, 2021, is incorporated into this report by reference.     Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   For information regarding security ownership of certain beneficial owners and management, see the Proxy Statement for the Annual Meeting of Shareholders to be held on October 28, 2021 under the captions "Principal Shareholders” and “Directors and Executive Officers" and incorporated into this report by reference.   For information regarding securities authorized for issuance under equity compensation plans of the Company, see “Equity Compensation Plan Information” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 28, 2021, which is incorporated into this report by reference.   There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.   25     Item 13. Certain Relationships and Related Transactions, Director Independence   For information with respect to transactions with related persons and policies for the review, approval or ratification of such transactions, see “Corporate Governance – Review, Approval or Ratification of Transactions with Related Persons” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.   For information with respect to director independence, see “Corporate Governance – Board Independence” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.     Item 14. Principal Accounting Fees and Services   The Company incorporates by reference the information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021 under the headings “Fees to Independent Registered Public Accounting Firm” and “Pre-approval Policies and Procedures.”   26     PART IV   Item 15. Exhibits, Financial Statement Schedules   (a)(1) Consolidated Financial Statements   See Index to Consolidated Financial Statements and Financial Statement Schedule, the Report of Independent Registered Public Accounting Firm and the Consolidated Financial Statements, all of which are incorporated by reference.   (a)(2) Consolidated Financial Statement Schedule   See Index to Consolidated Financial Statements and Financial Statement Schedule, and the Consolidated Financial Statement Schedule, all of which are incorporated by reference.   (a)(3) Exhibits. See Exhibit Index included as the last page of this form, which is incorporated by reference.   27     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page     Report of Independent Registered Public Accounting Firm 29-30     Consolidated Balance Sheets as of June 30, 2021 and 2020 31     Consolidated Statements of Operations and Comprehensive Loss for the years ended June 30, 2021 and 2020 32     Consolidated Statements of Cash Flows for the years ended June 30, 2021 and 2020 33     Consolidated Statements of Changes in Equity for the years ended June 30, 2021 and 2020 34     Notes to Consolidated Financial Statements 35-65         INDEX TO FINANCIAL STATEMENT SCHEDULE       Schedule II - Valuation and Qualifying Accounts 66   Schedules, other than those listed, are omitted for the reason that they are inapplicable, are not required, or the information required is shown in the financial statements or the related notes.   28     Report of Independent Registered Public Accounting Firm     To the Shareholders and the Board of Directors of Twin Disc, Incorporated:     Opinion on the Internal Control Over Financial Reporting We have audited Twin Disc, Incorporated's (the Company) internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.   We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated September 2, 2021 expressed an unqualified opinion.   A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment. The misstatement related to a deficiency in the company’s review controls over significant, infrequent transactions that did not detect an error in the recording of a valuation allowance on deferred income tax assets. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021 financial statements, and this report does not affect our report dated September 2, 2021 on those financial statements.   Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management ’ s Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   /s/ RSM US LLP   Milwaukee, Wisconsin September 2, 2021    29     Report of Independent Registered Public Accounting Firm     To the Shareholders and the Board of Directors of Twin Disc, Incorporated:     Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Twin Disc, Incorporated (the Company) as of June 30, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for each of the two years in the period ended June 30, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.   We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated September 2, 2021 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of June 30, 2021, based on criteria established in  Internal Control — Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.   Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit   Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.   Deferred Tax Asset Valuation Allowance As described in Note N to the consolidated financial statements the Company’s gross deferred tax asset and valuation allowance was approximately $31,004,000 and $24,420,000, respectively, as of June 30, 2021. The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements.  Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. In evaluating the realizability of deferred tax assets in future periods, the available positive and negative evidence, including projected future taxable income exclusive of reversing temporary differences, history of book losses, tax planning strategies, and results of recent operations, are considered.   We identified management’s determination of the value of deferred tax assets as a critical audit matter as there is significant judgment required by management to conclude that it is more likely than not that these deferred tax assets will be realized in future periods. In addition, the auditing of these elements involved complex and subjective auditor judgment, including the need to involve personnel with specialized skill and knowledge.   Our audit procedures to evaluate management’s determination that sufficient taxable income will not be generated to realize deferred tax assets included the following, among others:   ● We evaluated the design and operating effectiveness of internal controls over income taxes, specifically, those controls over the evaluation of the realizability of deferred tax assets.   ● We evaluated the reasonableness of management’s estimates in regards to the ability to generate future taxable income and utilize the deferred tax assets by evaluating: (i) the forecast of future taxable income, including testing of management’s forecasts against the Company’s historical performance, and (ii) testing management’s assessment of the timing of future reversals of temporary differences.   ● We utilized personnel with specialized knowledge and skill in income taxes and accounting for income taxes under ASC 740 to assist in the evaluation of management’s assessment of positive and negative evidence and their conclusion that it is more likely than not that the Company will not realize the benefit of its deferred tax assets.   /s/ RSM US LLP   We have served as the Company's auditor since 2017.   Milwaukee, Wisconsin September 2, 2021   30       TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2021 and 2020 (In thousands, except share amounts)       2021     2020                     ASSETS                 Current assets:                 Cash   $ 12,340     $ 10,688   Trade accounts receivable, net     39,491       30,682   Inventories     114,967       120,607   Assets held for sale     9,539       -   Prepaid expenses     5,704       5,269   Other     9,926       6,739   Total current assets     191,967       173,985                     Property, plant and equipment, net     45,463       58,284   Right-of-use assets operating leases     14,736       14,448   Intangible assets, net     17,480       18,973   Deferred income taxes     2,511       24,445   Other assets     3,256       3,992                     Total assets   $ 275,413     $ 294,127                     LIABILITIES AND EQUITY                 Current liabilities:                 Current maturities of long-term debt   $ 2,000     $ 4,691   Accounts payable     31,011       25,663   Accrued liabilities     45,549       36,380   Total current liabilities     78,560       66,734                     Long-term debt     30,085       37,896   Lease obligations     12,887       12,738   Accrued retirement benefits     11,176       27,938   Deferred income taxes     5,045       5,501   Other long-term liabilities     7,000       3,362                     Total liabilities     144,753       154,169                     Commitments and contingencies (Note O)                                   Equity:                 Twin Disc shareholders' equity:                 Preferred shares authorized: 200,000 ; issued: none ; no par value     -       -   Common shares authorized: 30,000,000 ; issued: 14,632,802 ; no par value     40,972       42,756   Retained earnings     126,936       156,655   Accumulated other comprehensive loss     ( 22,615 )     ( 41,226 )       145,293       158,185   Less treasury stock, at cost ( 984,139 and 1,226,809 shares, respectively)     15,083       18,796                     Total Twin Disc shareholders' equity     130,210       139,389                     Noncontrolling interest     450       569                     Total equity     130,660       139,958                     Total liabilities and equity   $ 275,413     $ 294,127     The notes to condensed consolidated financial statements are an integral part of these statements.   31       TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the years ended June 30, 2021 and 2020 (In thousands, except per share amounts)       2021     2020                     Net sales   $ 218,581     $ 246,838   Cost of goods sold     167,724       191,130   Gross profit     50,857       55,708                     Marketing, engineering and administrative expenses     55,750       63,218   Restructuring expenses     7,377       5,138   Goodwill and other asset impairment charge     -       27,603   Loss from operations     ( 12,270 )     ( 40,251 )                   Other income (expense):                 Interest expense     ( 2,358 )     ( 1,860 ) Income from extinguishment of loan     8,200       -   Other (expense) income, net     ( 3,411 )     ( 1,629 )       2,431       ( 3,489 )                   Loss before income taxes and noncontrolling interest     ( 9,839 )     ( 43,740 )                   Income tax expense (benefit)     19,680       ( 4,169 )                   Net loss     ( 29,519 )     ( 39,571 )                   Less: Net earnings attributable to noncontrolling interest, net of tax     ( 200 )     ( 246 )                   Net loss attributable to Twin Disc   $ ( 29,719 )   $ ( 39,817 )                   Loss per share data:                 Basic loss per share attributable to Twin Disc common shareholders   $ ( 2.24 )   $ ( 3.03 ) Diluted loss per share attributable to Twin Disc common shareholders   $ ( 2.24 )   $ ( 3.03 )                   Weighted average shares outstanding data:                 Basic shares outstanding     13,247       13,153   Dilutive stock awards     -       -                     Diluted shares outstanding     13,247       13,153                     Comprehensive loss                 Net loss   $ ( 29,519 )   $ ( 39,571 ) Foreign currency translation adjustment     5,639       ( 966 ) Benefit plan adjustments, net of income taxes of $ 3,791 and ($530) , respectively     12,113       ( 1,675 ) Unrealized gain (loss) on hedges, net of income taxes of $235 and ($185) , respectively     760       ( 595 ) Comprehensive loss     ( 11,007 )     ( 42,807 ) Less: Comprehensive income attributable to noncontrolling interest     ( 101 )     ( 266 )                   Comprehensive loss attributable to Twin Disc   $ ( 11,108 )   $ ( 43,073 )   The notes to consolidated financial statements are an integral part of these statements.   32       TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 30, 2021 and 2020 (In thousands)       2021     2020   Cash flows from operating activities:                 Net loss   $ ( 29,519 )   $ ( 39,571 ) Adjustments to reconcile net loss to net cash provided by operating activities:                 Depreciation and amortization     11,243       11,925   Income from extinguishment of loan     ( 8,200 )     -   Restructuring of operations     6,619       2,269   Stock compensation expense     2,154       1,158   Provision for deferred income taxes     17,655       ( 8,072 ) Goodwill and other asset impairment charge     -       27,603   Other, net     798       258   Changes in operating assets and liabilities                 Trade accounts receivable     ( 7,810 )     13,132   Inventories     9,063       6,775   Other assets     ( 5,007 )     2,246   Accounts payable     4,606       ( 3,342 ) Accrued liabilities     7,058       ( 5,807 ) Accrued/prepaid retirement benefits     ( 2,132 )     544                     Net cash provided by operating activities     6,528       9,118                     Cash flows from investing activities:                 Capital expenditures     ( 4,464 )     ( 10,699 ) Proceeds on note receivable     1,500       500   Proceeds from sale of plant assets     102       137   Proceeds from life insurance policy     253       102   Other, net     ( 133 )     ( 159 )                   Net cash used by investing activities     ( 2,742 )     ( 10,119 )                   Cash flows from financing activities:                 Borrowings under long-term debt agreement     -       8,200   Borrowings under revolving loan agreement     76,335       99,262   Repayments under revolving loan agreement     ( 78,370 )     ( 105,065 ) Repayments of long-term borrowings     ( 1,838 )     ( 2,241 ) Payments of withholding taxes on stock compensation     ( 224 )     ( 913 ) Dividends paid to noncontrolling interest     ( 220 )     ( 298 )                   Net cash used by financing activities     ( 4,317 )     ( 1,055 )                   Effect of exchange rate changes on cash     2,183       382                     Net change in cash     1,652       ( 1,674 )                   Cash:                 Beginning of year     10,688       12,362                     End of year   $ 12,340     $ 10,688                     Supplemental cash flow information:                 Cash paid during the year for:                 Interest   $ 2,366     $ 1,861   Income taxes     3,257       3,481     The notes to consolidated financial statements are an integral part of these statements.   33       TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended June 30, 2021 and 2020 (In thousands)       Twin Disc, Inc. Shareholders ’ Equity                       Accumulated                                               Other             Non-               Common     Retained     Comprehensive     Treasury     Controlling     Total       Stock     Earnings     Income (Loss)     Stock     Interest     Equity   Balance at June 30, 2019   $ 45,047     $ 196,472     $ ( 37,971 )   $ ( 21,332 )   $ 602     $ 182,818                                                     Net (loss) income           ( 39,817 )                 246       ( 39,571 ) Translation adjustments                 ( 985 )           19       ( 966 ) Benefit plan adjustments, net of tax                 ( 1,675 )                 ( 1,675 ) Unrealized loss on hedges, net of tax                 ( 595 )                 ( 595 ) Cash dividends                             ( 298 )     ( 298 ) Compensation expense     1,158                               1,158   Shares (acquired) issued, net     ( 3,449 )                 2,536             ( 913 )                                                   Balance at June 30, 2020     42,756       156,655       ( 41,226 )     ( 18,796 )     569       139,958                                                     Net (loss) income           ( 29,719 )                 200       ( 29,519 ) Translation adjustments                 5,738             ( 99 )     5,639   Benefit plan adjustments, net of tax                 12,113                   12,113   Unrealized gain on hedges, net of tax                 760                   760   Cash dividends                             ( 220 )     ( 220 ) Compensation expense     2,154                               2,154   Shares (acquired) issued, net     ( 3,938 )                 3,713             ( 225 )                                                   Balance at June 30, 2021   $ 40,972     $ 126,936     $ ( 22,615 )   $ ( 15,083 )   $ 450     $ 130,660     The notes to consolidated financial statements are an integral part of these statements.   34     TWIN DISC, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA)       A.   SIGNIFICANT ACCOUNTING POLICIES   COVID- 19   Throughout this report, references made to “COVID- 19” pertain to the global pandemic declared by the World Health Organization (“WHO”) in March 2020. This pandemic caused shelter-in-place policies, unexpected factory closures, supply chain disruptions, and market volatilities across the globe. These drastic actions resulted in an unprecedented global recession, causing substantial declines in countries’ gross domestic output around the world.   The full impact of the COVID- 19 outbreak continues to evolve as of the date of this report. The depth and duration of the pandemic remains unknown. Despite the availability of vaccines, recent surges in the infection rate and the detection of new variants of the virus have reinforced the general consensus that the containment of COVID- 19 remains a challenge. Management is actively monitoring the global situation and its effect on its financial condition, liquidity, operations, suppliers, industry, and workforce.   Significant Accounting Policies   The following is a summary of the significant accounting policies followed in the preparation of these financial statements:   Consolidation Principles ‑‑The consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly-owned domestic and foreign subsidiaries. In fiscal 2021 and 2020, certain subsidiaries changed their reporting periods to conform to the Company’s fiscal year end. The impact of aligning to the corporate reporting period is not material to the consolidated results. All significant intercompany transactions have been eliminated.   Management Estimates-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates.   Translation of Foreign Currencies ‑‑The financial statements of the Company’s non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the weighted-average exchange rate for the year for revenues and expenses. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss, which is included in equity. Gains and losses from foreign currency transactions are included in earnings. Included in other (expense) income are foreign currency transaction losses of ($ 2,108 ) and ($ 570 ) in fiscal 2021 and 2020, respectively.   Cash --The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalent. Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment. To the extent that checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the amount of those un-presented checks is included in accounts payable.   Accounts Receivable --These represent trade accounts receivable and are stated net of an allowance for doubtful accounts of $ 1,870 and $ 1,740 at June 30, 2021 and 2020, respectively. The Company records an allowance for doubtful accounts for certain customers where a risk of default has been specifically identified as well as provisions determined on a general basis when it is believed that some default is probable and estimable. The assessment of likelihood of customer default is based on a variety of factors, including the length of time the receivables are past due, the historical collection experience and existing economic conditions. Various factors may adversely impact its customer’s ability to access sufficient liquidity and capital to fund their operations and render the Company’s estimation of customer defaults inherently uncertain. While the Company believes current allowances for doubtful accounts are adequate, it is possible that these factors may cause higher levels of customer defaults and bad debt expense in future periods.   35     Fair Value of Financial Instruments --The carrying amount reported in the consolidated balance sheets for cash, trade accounts receivable and accounts payable approximate fair value because of the immediate short-term maturity of these financial instruments . If measured at fair value, cash would be classified as Level 1 and all other items listed above would be classified as Level 2 in the fair value hierarchy, as defined in Note M, Pension and Other Postretirement Benefit Plans. The Company’s borrowings under the revolving loan agreement, which is classified as long-term debt and consists of loans that are routinely borrowed and repaid throughout the year, approximate fair value at June 30, 2021. The Company’s term loan borrowing, which is LIBOR-based, approximates fair value at June 30, 2021. If measured at fair value in the financial statements, long-term debt (including any current portion) would be classified as Level 2 in the fair value hierarchy.   Derivative Financial Instruments - - The Company has written policies and procedures that place all financial instruments under the direction of the Company’s corporate treasury department and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is prohibited. The Company uses derivative financial instruments to manage certain financial risks. The Company enters into forward contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. The Company uses interest rate swap contracts to reduce the exposure to variability in interest rates on floating debt borrowings. The Company designates certain financial instruments as cash flow hedges for accounting purposes. The Company designates certain financial instruments as net investment hedges to reduce the exposure in its foreign currency denominated net investments in wholly-owned subsidiaries. See Note R, Derivative Financial Instruments, for additional information.   Inventories ‑‑Inventories are valued at the lower of cost or net realizable value. Cost has been determined by the last‑in, first‑out (LIFO) method for the majority of inventories located in the United States, and by the first‑in, first‑out (FIFO) method for all other inventories. Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among others, when evaluating the adequacy of the reserve for excess and obsolete inventory.   Assets Held for Sale-- Assets that will be recovered principally through sale rather than in its continuing use in operations are reclassified out of property, plant and equipment and into assets held for sale if all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset(s); (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer, and other actions required to complete the plan to sell the asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within a year; (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that plan will be withdrawn.   Assets Held for Sale are carried at fair value less costs to sell, or net book value, whichever is lower. The Company ceases to record depreciation expense at the time of designation as held for sale. During fiscal 2021, the Company classified certain properties as held for sale and recorded impairment charges of $ 4,267 . See Note P, Restructuring of Operations and Income from Extinguishment of Loan, for additional information.   Property, Plant and Equipment and Depreciation ‑‑Assets are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and betterments are capitalized and depreciated. Depreciation is provided on the straight‑line method over the estimated useful lives of the assets. The lives assigned to buildings and related improvements range from 10 to 40 years, and the lives assigned to machinery and equipment range from 5 to 15 years. Upon disposal of property, plant and equipment, the cost of the asset and the related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Fully depreciated assets are not removed from the accounts until physically disposed.   Right of Use Lease Assets-- In accordance with ASC 842, the Company’s leases, with lease periods longer than twelve months, are recorded on the consolidated balance sheets. These leases primarily consist of office and warehouse facilities, as well as production and office equipment.   36     The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically do not provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current borrowing rate, the lease period, and the economic environments where the lease activity is concentrated.                                                During fiscal 2021, the Company elected to more closely align with ASC 842 by presenting operating lease right-of-use assets and finance lease right-of-use assets on separate lines on the consolidated balance sheets, as well as to present operating lease liabilities and finance lease liabilities on separate lines on the consolidated balance sheets. For comparative purposes, the Company restated certain amounts previously reported on the consolidated balance sheet as of June 30, 2020. The following table presents the effect of those changes:                June 30, 2020             June 30, 2020       As Reported     Impact     Restated                             Property, plant and equipment, net   $ 72,732     $ ( 14,448 )   $ 58,284   Right-of-use assets operating leases     -       14,448       14,448                             Lease obligations   $ 13,495     $ ( 757 )   $ 12,738   Other long-term liabilities     2,605       757       3,362     Impairment of Long-lived Assets --The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. For property, plant and equipment and other long-lived assets, including intangible assets, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Fair value is primarily determined using discounted cash flow analyses; however, other methods may be used to determine the fair value, including third party valuations when necessary.   Intangible Assets --Intangible assets primarily consist of customer relationships, technology and know-how, and tradenames, all of which are definite-lived. They were initially valued at fair value at acquisition, and are amortized over their respective useful lives on the basis of straight line or accelerated, as appropriate.   Income Taxes --The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. The Company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority.   Revenue Recognition --Revenue from contracts with customers is recognized using a five -step model consisting of the following:   1. identify the contract with a customer ; The Company’s customers consist of distributors and direct end-users. With regard to distributors, the Company generally has written distribution agreements which describe the terms of the distribution arrangement, such as the product range, the sales territory, product pricing, sales support, payment and returns policy, etc. Customer contracts are generally in the form of acknowledged purchase orders. Services to be rendered, as part of the delivery of those products, are also generally specified. Such services include installation reviews and technical commissioning.   2. identify the performance obligations in the contract ; The Company’s performance obligations primarily consist of product delivery and certain service obligations such as technical commissioning, repair services, installation reviews, and shift development.   3. determine the transaction price ; The Company considers the invoice as the transaction price.   4. allocate the transaction price to the performance obligations in the contract ; The Company determined that the most relevant allocation method for its service obligations is to apply the expected cost plus appropriate margin. This is the Company’s practice of billing for repairs, overhaul, and other product service related time incurred by its technicians.   37       5. recognize revenue ; Revenue is recognized as each performance obligation is satisfied which is typically when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. For technical commissioning, repairs, installation review, and shift development services, revenue is recognized upon completion of the service. The amount of revenue recognized is based on the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable.   Goods sold to third party distributors are subject to an annual return policy, for which a provision is made at the time of shipment based upon historical experience. Goods sold under bill and hold arrangements are recorded as revenue when control has been transferred to the customer and when the reason for the arrangement is substantive, when the product is identified as the customer’s asset, when the product is ready for delivery to the customer, and when the Company cannot use the product or redirect the product to another customer.   Shipping and Handling Fees and Costs --The Company records revenue from shipping and handling costs in net sales. The cost associated with shipping and handling of products is reflected in cost of goods sold.   Recently Adopted Accounting Standards     a. In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance (ASU 2018 - 13 ) as part of the disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in ASC  820, Fair Value Measurement . The Company adopted this guidance effective July 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.     b. In August 2018, the FASB issued updated guidance (ASU 2018 - 14 ) intended to modify the disclosure requirements for employers that sponsor defined benefit pension or postretirement plans. The Company adopted this guidance effective July 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.   New Accounting Releases     a. In June 2016, the FASB issued updated guidance (ASU 2016 - 13 ) and also issued subsequent amendments to the initial guidance under ASU 2018 - 19, ASU 2019 - 04, ASU 2019 - 05 and ASU 2019 - 10 (collectively ASC 326 ). ASC 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The amendments in this guidance are effective for filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, and for smaller reporting companies for fiscal years beginning after December 15, 2022 ( the Company’s fiscal 2024 ), with early adoption permitted for certain amendments. ASC 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.     b. In December 2019, the FASB issued guidance (ASU 2019 - 12 ) intended to simplify the accounting for income taxes. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 ( the Company’s fiscal 2022 ), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.     c. In March 2020 and January 2021, the FASB issued guidance (ASU 2020 - 04 and ASU 2021 - 01, respectively), intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments in this guidance are effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is working with its lender and currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.   38     Special Note Regarding Smaller Reporting Company Status   Under SEC Release 33 - 10513; 34 - 83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company based on its public float as of the last business day of the second quarter of fiscal 2021. Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.       B.   INVENTORIES   The major classes of inventories at June 30 were as follows:       2021     2020   Finished parts   $ 59,761     $ 62,394   Work in process     17,908       17,844   Raw materials     37,298       40,369       $ 114,967     $ 120,607     Inventories stated on a LIFO basis represent approximately 45 % and 50 % of total inventories at June 30, 2021 and 2020, respectively.  The approximate current cost of the LIFO inventories exceeded the LIFO cost by $ 25,969 and $ 27,225 at June 30, 2021 and 2020, respectively.  Inventories were reduced during 2021, resulting in a liquidation of a LIFO inventory layer that was carried at a lower cost prevailing from a prior year, as compared with current costs in the current year (“LIFO decrement”). A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. For the year ended June 30, 2021, the effect of this LIFO decrement decreased cost of goods sold by $ 1,105 . There was no LIFO decrement for the year ended June 20, 2020.   The Company had reserves for inventory obsolescence of $ 10,279 and $ 9,863 at June 30, 2021 and 2020, respectively.       C.   PROPERTY, PLANT AND EQUIPMENT   Property, plant and equipment at June 30 were as follows:       2021     2020   Land   $ 3,858     $ 6,589   Buildings     30,317       48,168   Machinery and equipment     150,872       146,841         185,047       201,598   Less: accumulated depreciation     ( 139,584 )     ( 143,314 )     $ 45,463     $ 58,284     Included in the above amounts are finance lease right-of-use assets of $ 5,244 and $ 959 for the years ended June 30, 2021 and 2020, respectively.   Depreciation expense for the years ended June 30, 2021 and 2020 was $ 7,853 and $ 7,394 , respectively.   39       D.   INTANGIBLE ASSETS   At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization:       Net Book Value Rollforward     Net Book Value By Asset Type               Gross Carrying Amount     Accumulated Amortization / Impairment     Net Book Value     Customer Relationships     Technology Know-how     Trade Name     Other   Balance at June 30, 2019   $ 39,587     $ ( 14,434 )   $ 25,153     $ 14,843     $ 7,025     $ 2,733     $ 552   Addition     92       -       92       -       -       -       92   Amortization     -       ( 4,532 )     ( 4,532 )     ( 3,003 )     ( 1,139 )     ( 232 )     ( 158 ) Impairment     -       ( 1,306 )     ( 1,306 )     -       -       ( 1,080 )     ( 226 ) Translation adjustment     ( 434 )     -       ( 434 )     ( 286 )     ( 102 )     ( 33 )     ( 13 ) Balance at June 30, 2020     39,245       ( 20,272 )     18,973       11,554       5,784       1,388       247   Addition     833       -       833       -       -       -       833   Amortization     -       ( 3,390 )     ( 3,390 )     ( 1,880 )     ( 1,226 )     ( 184 )     ( 100 ) Translation adjustment     1,064       -       1,064       647       325       78       14   Balance at June 30, 2021   $ 41,142     $ ( 23,662 )   $ 17,480     $ 10,321     $ 4,883     $ 1,282     $ 994     Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accelerated, as appropriate, over the estimated useful lives of the assets.   The weighted average remaining useful life of the intangible assets included in the table above is approximately 7 years.   Intangible amortization expense for the years ended June 30, 2021 and 2020 was $ 3,390 and $ 4,532 , respectively. Estimated intangible amortization expense for each of the next five fiscal years is as follows:   Fiscal Year         2022   $ 3,316   2023     3,144   2024     2,988   2025     2,817   2026     1,427   Thereafter     3,788     Goodwill and Other Intangibles Impairment Charge in Fiscal 2020   Prior to the third quarter of fiscal 2020, the Company carried goodwill in the amount $ 25,380 . As a result of the economic disruptions and unprecedented market volatilities and uncertainties driven by the COVID- 19 outbreak, the Company experienced significant supply chain disruptions and a slowdown in the demand for its products. The Company believed that the negative economic impacts of the COVID- 19 outbreak was a triggering event in the third quarter of fiscal 2020 that required it to perform an interim goodwill impairment test as of the quarter ended March 27, 2020.   40     The Company completed its assessment for goodwill impairment as of March 27, 2020 with the assistance of a third party expert, using updated inputs, such as updated cash flow projections and an appropriate risk-based, company specific weighted average discount rate of 13.0 %. The assessment resulted in the full impairment of goodwill, which pertained to the European Propulsion and European Industrial reporting units, in the amount of $ 25,380 .   As a result of the full impairment of goodwill, the balance of goodwill at June 30, 2021 and June 30, 2020 was zero . There will no longer be a need for future goodwill impairment tests unless the Company acquires new goodwill in the future through a business combination.   As a consequence of these macroeconomic developments, market insights and expectations, and the occurrence of a triggering event in the quarter, the Company also performed an assessment of its intangibles and other long-lived assets. The Company performed an undiscounted operating cash flow analysis as of March 27, 2020, as well as the review of other assets in service and their remaining useful lives. It was determined that an impairment charge pertaining to certain tradenames, licenses and other assets was required, in the amount of $ 2,223 .   The total non-cash impairment charge of $ 27,603 in fiscal year 2020, as described above, was a non-cash charge and is reported on the goodwill and other asset impairment charge line in the consolidated statement of operations within the manufacturing segment. The tax impact of this charge was to increase the income tax expense (benefit) by $ 1,199 .   The changes in the carrying amount of goodwill are summarized as follows:       Net Book Value Rollforward     Net Book Value By Reporting Unit       Gross Carrying Amount     Accumulated Impairment     Net Book Value     European Propulsion     European Industrial   Balance at June 30, 2019   $ 39,776     $ ( 13,822 )   $ 25,954     $ 23,371     $ 2,583   Impairment     -       ( 25,380 )     ( 25,380 )     ( 22,822 )     ( 2,558 ) Translation adjustment     ( 574 )     -       ( 574 )     ( 549 )     ( 25 ) Balance at June 30, 2020     39,202       ( 39,202 )     -       -       -   Translation adjustment     -       -       -       -       -   Balance at June 30, 2021   $ 39,202     $ ( 39,202 )   $ -     $ -     $ -       E.   ACCRUED LIABILITIES   Accrued liabilities at June 30 were as follows:       2021     2020   Customer deposits   $ 13,124     $ 11,541   Salaries and wages     10,022       5,116   Warranty     3,448       3,520   Distributor rebates     3,190       3,769   Retirement benefits     1,769       3,559   Other     13,996       8,875       $ 45,549     $ 36,380     The increase in accrued salaries and wages as of June 30, 2021 is due to an accrual for bonus as well as timing of the payments in the payroll cycle.   41       F.   WARRANTY   The Company warrants all assembled products, parts (except component products or parts on which written warranties are issued by the respective manufacturers thereof and are furnished to the original customer, as to which the Company makes no warranty and assumes no liability) and service against defective materials or workmanship. Such warranty generally extends from periods ranging from 12 months to 24 months. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers. However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends. While the Company believes that the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires. The following is a listing of the activity in the warranty reserve during the years ended June 30:       2021     2020                     Reserve balance, July 1   $ 4,460     $ 3,736   Current period expense and adjustments     3,590       10,369   Payments or credits to customers     ( 3,742 )     ( 9,629 ) Translation adjustment     61       ( 16 ) Reserve balance, June 30   $ 4,369     $ 4,460     Included in current period expense and adjustments in the year ended June 30, 2020 is a non-recurring warranty charge in the amount of $ 6,233 to accrue for estimated costs to resolve a unique product performance issue at certain installations.   The current portion of the warranty accrual ($ 3,448 and $ 3,520 for fiscal 2021 and 2020, respectively) is reflected in accrued liabilities, while the long-term portion ($ 921 and $ 940 for fiscal 2021  and 2020, respectively) is included in other long-term liabilities on the consolidated balance sheets.       G.   DEBT   Long-term debt consisted of the following at June 30:       2021     2020   Credit Agreement Debt                 Revolving loans (expire June 2023)   $ 15,415     $ 16,641   Term loan (due March 2026)     16,500       17,500   PPP loan     -       8,200   Other     170       246   Subtotal     32,085       42,587   Less: current maturities     ( 2,000 )     ( 4,691 ) Total long-term debt   $ 30,085     $ 37,896     Credit Agreement Debt :   On June 29, 2018, the Company entered into a new credit agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $ 35,000 and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $ 50,000 (the “Revolving Credit Commitment”). The Credit Agreement also allows the Company to obtain letters of credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans.   On July 2, 2018, in connection with the acquisition of Veth Propulsion, the Company drew a total of $ 60,729 of additional borrowings on the Credit Agreement, consisting of a $ 35,000 Term Loan payable and revolver borrowings of $ 25,729 . The new borrowing was used to pay the cash consideration at closing of $ 58,862 , and to pay off the loan owed to the prior parent of Veth Propulsion in the amount of $ 1,865 .   On September 25, 2018, the Company used the proceeds of a stock offering (see Note I, Shareholders’ Equity) of $ 32,210 to partially pay down the Term Loan and Revolving Loans.   On March 4, 2019, the Company entered into a second amendment (the “Second Amendment”) to the Credit Agreement. The Second Amendment reduced the principal amount of the Term Loan commitment under the Credit Agreement from $35,000 to $ 20,000 . In connection with the Second Amendment, the Company issued an amended and restated term note in the amount of $20,000 to BMO, which amended the original $35,000 note provided under the Credit Agreement.   42     Prior to entering into the Second Amendment, the outstanding principal amount of the Term Loan under the Credit Agreement was $ 10,849 . On the date of the Second Amendment, the BMO made an additional advance on the Term Loan to the Company in the amount of $ 9,151 . The Second Amendment also extended the maturity date of the Term Loan from January 2, 2020 to March 4, 2026, and added a requirement that the Company make principal installments of $ 500 per quarter starting with the quarter ending June 30, 2019.   The Second Amendment also reduced the applicable margin for purposes of determining the interest rate applicable to the Term Loan. Previously, the applicable margin was 3.00 %, which was added to the Monthly Reset LIBOR Rate or the Adjusted LIBOR, as applicable. Under the Second Amendment, the applicable margin is between 1.375 % and 2.375 %, depending on the Company’s total funded debt to EBITDA ratio.   The Second Amendment also adjusts certain financial covenants made by the Company under the Credit Agreement. Specifically, the Company has covenanted (i) not to allow its total funded debt to EBITDA ratio to be greater than 3.00 to 1.00 (the cap had previously been 3.50 to 1.00 for quarters ending on or before September 30, 2019 and 3.25 to 1.00 for quarters ending on or about December 31, 2019 through September 30, 2020), and (ii) that its tangible net worth will not be less than $ 100,000 plus 50% of net income for each fiscal year ending on and after June 30, 2019 for which net income is a positive number (the $100,000 figure had previously been $ 70,000 ).   On January 28, 2020, the Company entered into a third amendment (the “Third Amendment”). The Third Amendment restated the financial covenant provisions related to the maximum allowable ratio of total funded debt to EBITDA from 3.00 to 1.00 to 4.00 to 1.00 for the quarter ended December 27, 2019, 5.00 to 1.00 for the quarter ending March 27, 2020, 4.00 to 1.00 for the quarter ending June 30, 2020, 3.50 to 1.00 for the quarter ending September 25, 2020 and 3.00 to 1.00 for quarters ending on or after December 25, 2020. For purposes of determining EBITDA, the Third Amendment added back extraordinary expenses ( not to exceed $ 3,900 million) related to the previously reported isolated product performance issue on one of the Company’s oil and gas transmission models at certain installations. Under the Third Amendment, the applicable margin for revolving loans, letters of credit, and term loans was between 1.25 % and 3.375 %, depending on the Company’s total funded debt to EBITDA ratio.   On April 17, 2020, in connection with a loan obtained under the Payment Protection Plan (the “PPP Loan”) as described below, the Company entered into a fourth amendment (the “Fourth Amendment”). The Fourth Amendment: ( 1 ) permitted the Company to incur indebtedness in the form of the PPP Loan notwithstanding the Credit Agreement’s restrictions limiting the Company’s ability to incur indebtedness, and ( 2 ) provides that the PPP Loan (to the extent that the Loan is forgiven) shall be disregarded for purposes of calculating financial covenants in the Credit Agreement (the “Covenants”). Any unforgiven portion of the Loan and the interest thereon will not be disregarded for purposes of calculating the Covenants.   On July 22, 2020, the Company entered into a fifth amendment (the "Fifth Amendment"), which was effective June 30, 2020. Under this amendment, (a) the Revolving Loan availability was reduced from $ 50,000 to $ 45,000 , (b) the quarterly payments occurring on September 30, 2020 and December 31, 2020 are changed to be interest-only payments at the Company's option, and (c) the applicable margin on the Term Loan was increased from 3.375 % to 3.875 %. As a result of this amendment, $ 1,000 of principal payments originally due in fiscal 2021 have been deferred to fiscal 2026.   In addition, the Company was given financial covenant relief for the quarters ended June 30, 2020 through June 30, 2021. During this period, in lieu of the Total Funded Debt to EBITDA ratio financial covenant, the Company is required to maintain a minimum cumulative EBITDA, as follows: ( 1 ) $ 1,000 for the fiscal quarter ended June 30, 2020 and the two fiscal quarters ending September 25, 2020; ( 2 ) $ 2,500 for the three fiscal quarters ending December 25, 2020; ( 3 ) $ 6,000 for the four fiscal quarters ending March 26, 2021; and ( 4 ) $ 10,000 for the four fiscal quarters ending June 30, 2021.   The Company also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. Under the Fifth Amendment, the Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.   43     On January 27, 2021, the Company and BMO entered into a forbearance agreement and amendment to the Credit Agreement (the “Forbearance Agreement”). Under this agreement, BMO agreed to forbear from exercising its rights and remedies against the Company with respect to its noncompliance with the minimum EBITDA financial covenant, for the period beginning with the date of the amendment through September 30, 2021. After this date, the forbearance period ends and, therefore, on December 31, 2021, the Company is subject to a total funded debt to EBITDA ratio of 3.00 to 1.00. During the forbearance period, revolving credit commitment is reduced from $ 45,000 to $ 42,500 .   For the quarter ended June 30, 2021, as a result of the Forbearance Agreement, the Company was not required to meet the minimum EBITDA financial covenant. The Company expects to be in compliance with the terms of the Credit Agreement following the forbearance period, and therefore continues to classify its debt as long term.   The Company is also required to maintain a minimum liquidity level, and abide by certain cash dividend and capital expenditure restrictions. The Company remains in compliance with its liquidity and other financial covenants, and has agreed to provide additional financial reports to BMO.   Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 100 % of its equity interests in certain domestic subsidiaries and 65 % of its equity interests in certain foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion.   Upon the occurrence of an event of default, BMO may take the following actions upon written notice to the Company: ( 1 ) terminate its remaining obligations under the Credit Agreement; ( 2 ) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and ( 3 ) demand the Company to immediately cash collateralize letter of credit obligations in an amount equal to 105 % of the aggregate letter of credit obligations or a greater amount if BMO determines a greater amount is necessary. If such event of default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company.   In addition to the monthly interest payments and any mandatory principal payments required by the Credit Agreement (if applicable), the Company is responsible for paying a quarterly Revolving Credit Commitment Fee and quarterly Letter of Credit Fees. The Revolving Credit Commitment Fee is paid at an annual rate equal to the Applicable Margin on the average daily unused portion of the Revolving Credit Commitment. The Letter of Credit Fee is paid at the Applicable Margin for Revolving Loans that are Eurodollar Loans on the daily average face amount of Letters of Credit outstanding during the preceding calendar quarter. The Company may prepay the Loans (or any one of the Loans), subject to certain limitations.    The PPP Loan:   On April 17, 2020, the Company entered into a promissory note (the “PPP Loan”) evidencing an unsecured loan in the amount of $ 8,200 made to the Company under the Payment Protection Plan ("PPP"). The PPP is a liquidity facility program established by the U.S. government as part of the CARES Act in response to the negative economic impact of the COVID- 19 outbreak. The PPP Loan is funded by the Small Business Administration (“SBA”) and administered by BMO. The PPP Loan has a two -year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred until April 2022.   The PPP Loan is a forgivable loan to the extent proceeds are used to cover qualified documented payroll, mortgage interest, rent, and utility costs over a 24 -week measurement period (as amended) following loan funding. For the loan to be forgiven, the Company was required to formally apply for forgiveness, and potentially, could be required to pass an audit that it met the eligibility qualifications of the loan.   In accounting for the terms of the PPP Loan, the Company is guided by ASC 470 Debt , and ASC 450 - 30 Gain contingency . Accordingly, it recorded the proceeds of the PPP Loan of $8,200 as debt and it will derecognize the liability when the loan is paid off or it has obtained forgiveness. The Company believes that the possibility of loan forgiveness is to be regarded as a contingent gain and therefore did not recognize the gain (and derecognize the loan) until all uncertainty was removed (i.e. all conditions for forgiveness are met). The Company applied for forgiveness, and on June 16, 2021, it was notified by BMO that the SBA remitted funds to BMO to repay the PPP Loan in full, evidencing that the PPP Loan was fully forgiven. The Company removed the balance of the PPP Loan from its consolidated balance sheet and recorded $ 8,200 in income from extinguishment of loan in its consolidated statement of operations in fiscal 2021.   44     While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the SBA for a period of six years after forgiveness. The audit is intended to confirm the Company’s eligibility for the loan and the appropriateness of the loan obtained. In accordance with ASC 450 Contingencies , the Company assessed the probability of failing the audit and being required to repay all or any portion of the PPP Loan. The Company is aware of the requirements and has retained all necessary documentation in support of its eligibility, including gross receipts calculations, supporting payroll expenses and related information. The Company believes that it has materially complied with all the requirements of the PPP and reasonably assured it would satisfy the requirements of an audit.   Other:   Other long-term debt pertains mainly to a financing arrangement in Europe. During fiscal 2019, the Company entered into sale leaseback agreements with a leasing company covering various company vehicles. Under the terms of the agreements, the Company received $ 329 in cash proceeds and agreed to lease back those same vehicles under various terms, ranging from 3 to 5 years. Under ASC 842, Leases , these agreements are required to be accounted for as financing transactions. Consequently, the Company recorded long-term liabilities for the proceeds received, and they are reduced as lease payments are made. These liabilities carry implied interest rates ranging from 7 % to 25 %. A total amount of $ 91 in principal was paid on these liabilities during the current fiscal year.   During fiscal year 2021, the average interest rate was 4.01 % on the Term Loan, and 4.25 % on the Revolving Loans.   As of June 30, 2021, the Company’s borrowing capacity under the terms of the Credit Agreement was approximately $ 43,795 and the Company had approximately $ 27,085 of available borrowings.   The Company’s borrowings described above approximates fair value at June 30, 2021 and June 30, 2020. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.   The Company is party to an interest rate swap arrangement with Bank of Montreal, with an outstanding notional amount of $ 15,500 as of June 30, 2021, and maturing on March 2026. This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging . This swap is included in the disclosures in Note R, Derivative Financial Instruments.   During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies. Effective upon the designation, all changes in fair value of the euro revolver are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note R, Derivative Financial Instruments.   The aggregate scheduled maturities of outstanding long-term debt obligations in subsequent years are as follows:   Fiscal Year         2022   $ 2,084   2023     17,461   2024     2,015   2025     2,000   2026     8,500   Thereafter     25       $ 32,085     Other lines of credit:   The Company has established unsecured lines of credit, which may be withdrawn at the option of the banks.  Under these arrangements, the Company has unused and available credit lines of $ 1,535 with a weighted average interest rate of 5.6 % as of June 30, 2021, and $ 943 with a weighted average interest rate of 5.6 % as of June 30, 2020.   45       H.   LEASE OBLIGATIONS   The following table provides a summary of leases recorded on the consolidated balance sheet at June 30.     Balance Sheet Location   2021     2020   Lease Assets                   Operating lease right-of-use assets Right-of-use assets operating leases   $ 14,736     $ 14,448   Finance lease right-of-use assets Property, plant and equipment, net     5,244       959                       Lease Liabilities                   Operating lease liabilities Accrued liabilities   $ 1,870     $ 1,724   Operating lease liabilities Lease obligations     12,887       12,738   Finance lease liabilities Accrued liabilities     541       233   Finance lease liabilities Other long-term liabilities     4,836       757     The components of lease expense for the years ended June 30 were as follows:       2021     2020   Finance lease cost:                 Amortization of right-of-use assets   $ 580     $ 188   Interest on lease liabilities     273       56   Operating lease cost     2,795       3,137   Short-term lease cost     24       64   Variable lease cost     159       58   Total lease cost     3,831       3,503   Less: Sublease income     ( 154 )     ( 212 ) Net lease cost   $ 3,677     $ 3,291     Other information related to leases was as follows:       2021     2020   Cash paid for amounts included in the measurement of lease liabilities:                 Operating cash flows from operating leases   $ 3,022     $ 3,141   Operating cash flows from finance leases     480       167   Financing cash flows from finance leases     273       56   Right-of-use-assets obtained in exchange for lease obligations:                 Operating leases     1,481       2,757   Finance leases     4,814       592   Weighted average remaining lease term (years):                 Operating leases     9.8       10.7   Finance lease     12.0       4.0   Weighted average discount rate:                 Operating leases     7.2 %     7.4 % Finance leases     5.2 %     6.2 %   46     Approximate future minimum rental commitments under non-cancellable leases as of June 30, 2021 were as follows:       Operating Leases     Finance Leases   2022   $ 2,898     $ 805   2023     2,600       796   2024     2,256       752   2025     1,663       507   2026     1,575       434   Thereafter     9,989       3,879   Total future lease payments     20,981       7,173   Less: Amount representing interest     ( 6,224 )     ( 1,796 ) Present value of future payments   $ 14,757     $ 5,377         I.   SHAREHOLDERS' EQUITY   The total number of shares of common stock outstanding at June 30, 2021 and 2020 was 13,648,663 and 13,405,993 , respectively. At June 30, 2021 and 2020, treasury stock consisted of 984,139 and 1,226,809 shares of common stock, respectively. The Company issued 249,480 and 186,226 shares of treasury stock in fiscal 2021 and 2020, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded forfeitures of 6,809 and 20,511 shares of previously issued restricted stock in fiscal 2021 and 2020, respectively. The difference between the cost of treasury shares and the option price is recorded in common stock.   Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open market purchases of its common stock.  The Company did not make any open market purchases during the two most recent fiscal years.  As of June 30, 2021 and 2020, 315,000 shares remain authorized for purchase.   Cash dividends per share were $ 0.00 in both fiscal 2021 and 2020.   The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued. The Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock.   The components of accumulated other comprehensive loss included in equity as of June 30, 2021 and 2020 are as follows:       2021     2020   Translation adjustments   $ 9,192     $ 3,454   Net loss on cash flow hedge derivatives, net of income taxes of $211 and $341 , respectively     ( 678 )     ( 1,104 ) Net gain on net investment hedge derivatives, net of income taxes of $103 and $0 , respectively     334       -   Benefit plan adjustments, net of income taxes of $9,537 and $13,316 respectively     ( 31,463 )     ( 43,576 ) Accumulated other comprehensive loss   $ ( 22,615 )   $ ( 41,226 )   A reconciliation for the changes in accumulated other comprehensive loss, net of tax, by component for the years ended June 30, 2021 and June 30, 2020 is as follows:       Translation     Benefit Plan     Cash Flow     Net Investment       Adjustment     Adjustment     Hedges     Hedges   Balance at June 30, 2020   $ 3,454     $ ( 43,576 )   $ ( 1,104 )   $ -   Other comprehensive loss before reclassifications     5,738       9,783       426       334   Amounts reclassified from accumulated other comprehensive loss     -       2,330       -       -   Net current period other comprehensive income     5,738       12,113       426       334   Balance at June 30, 2021   $ 9,192     $ ( 31,463 )   $ ( 678 )   $ 334     47         Translation     Benefit Plan     Cash Flow       Adjustment     Adjustment     Hedges   Balance at June 30, 2019   $ 4,439     $ ( 41,901 )   $ ( 509 ) Other comprehensive loss before reclassifications     ( 985 )     ( 3,792 )     ( 595 ) Amounts reclassified from accumulated other comprehensive loss     -       2,117       -   Net current period other comprehensive loss     ( 985 )     ( 1,675 )     ( 595 ) Balance at June 30, 2020   $ 3,454     $ ( 43,576 )   $ ( 1,104 )   A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended June 30, 2021 is as follows:       Amount       Reclassified   Amortization of benefit plan items         Actuarial losses   $ ( 3,246 ) Transition asset and prior service benefit     187   Total before tax benefit     ( 3,059 ) Tax benefit     729   Total reclassification net of tax   $ ( 2,330 )   A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended June 30, 2020 is as follows:       Amount       Reclassified   Amortization of benefit plan items         Actuarial losses   $ ( 2,982 ) Transition asset and prior service benefit     195   Total before tax benefit     ( 2,787 ) Tax benefit     670   Total reclassification net of tax   $ ( 2,117 )     J.   BUSINESS SEGMENTS AND FOREIGN OPERATIONS   The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, energy and natural resources, government, and industrial markets.   Net sales by product group is summarized as follows:       2021     2020   Industrial   $ 23,454     $ 26,343   Land-based transmissions     58,421       62,697   Marine and propulsion systems     127,243       152,501   Other     9,463       5,297   Total   $ 218,581     $ 246,838     Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets. The land based transmission products include applications for oil field and natural gas, military and airport rescue and fire fighting. The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, propellers and boat management systems for the global commercial marine, pleasure craft and patrol boat markets. Other includes non-Twin Disc manufactured product sold through Company-owned distribution entities.   48     The Company has two reportable segments: manufacturing and distribution.  Its segment structure reflects the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices.  Management evaluates the performance of its segments based on net earnings.   Information about the Company's segments, before intercompany eliminations, is summarized as follows:   2021   Manufacturing     Distribution     Total   Net Sales   $ 191,510     $ 100,221     $ 291,731   Intra-segment sales     9,436       14,746       24,182   Inter-segment sales     44,575       4,393       48,968   Interest income     172       17       189   Interest expense     2,449       1       2,450   Income taxes     ( 980 )     189       ( 791 ) Depreciation and amortization     10,455       412       10,867   Net income attributable to Twin Disc     11,016       105       11,121   Assets     364,379       46,956       411,335   Expenditures for segment assets     3,500       188       3,688     2020   Manufacturing     Distribution     Total   Net Sales   $ 227,565     $ 95,824     $ 323,389   Intra-segment sales     14,230       12,889       27,119   Inter-segment sales     43,854       5,578       49,432   Interest income     346       22       368   Interest expense     2,128       -       2,128   Income taxes     ( 2,027 )     268       ( 1,759 ) Depreciation and amortization     11,151       379       11,530   Net (loss) income attributable to Twin Disc     ( 31,603 )     553       ( 31,050 ) Assets     365,417       43,118       408,535   Expenditures for segment assets     9,615       734       10,349     The following is a reconciliation of reportable segment net sales and net income (loss) to the Company’s consolidated totals:       2021     2020   Net sales:                 Total net sales from reportable segments   $ 291,731     $ 323,389   Elimination of inter-company sales     ( 73,150 )     ( 76,551 ) Total consolidated net sales   $ 218,581     $ 246,838                     Net income (loss) attributable to Twin Disc:                 Total net income (loss) from reportable segments   $ 11,121     $ ( 31,050 ) Other adjustments and corporate expenses     ( 40,840 )     ( 8,767 ) Total consolidated net loss attributable to Twin Disc   $ ( 29,719 )   $ ( 39,817 )   Corporate expenses pertain to certain costs that are not allocated to the reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions and global functional expenses.   49     Other significant items:              Segment         Consolidated     Totals   Adjustments   Totals   2021                   Interest income $ 189   $ ( 170 ) $ 19   Interest expense   2,450     ( 92 )   2,358   Income taxes   ( 791 )   20,471     19,680   Depreciation and amortization   10,867     376     11,243   Assets   411,335     ( 135,922 )   275,413   Expenditures for segment assets   3,688     776     4,464                       2020                   Interest income $ 368   $ ( 290 ) $ 78   Interest expense   2,128     ( 268 )   1,860   Income taxes   ( 1,759 )   ( 2,410 )   ( 4,169 ) Depreciation and amortization   11,530     395     11,925   Assets   408,535     ( 114,408 )   294,127   Expenditures for segment assets   10,349     350     10,699     All adjustments represent inter-company eliminations and corporate amounts.   Geographic information about the Company is summarized as follows:       2021     2020   Net sales                 United States   $ 64,344     $ 83,771   Netherlands     33,026       39,501   China     25,790       26,354   Australia     17,963       12,438   Italy     16,041       11,802   Austria     7,798       12,552   Other countries     53,619       60,420   Total   $ 218,581     $ 246,838     Net sales by geographic region are based on product shipment destination.   Long-lived assets primarily pertain to property, plant and equipment and exclude goodwill, other intangibles, and deferred income taxes. They are summarized as follows:   Long-lived assets   2021     2020   United States   $ 34,629     $ 41,996   Netherlands     12,447       12,659   Belgium     8,575       8,363   Italy     1,525       1,697   Switzerland     503       6,804   Other countries     5,776       5,205   Total   $ 63,455     $ 76,724     There were no customers that accounted for 10% of consolidated net sales in fiscal 2021. The Company had one distributor customer, primarily of its manufacturing segment, that accounted for 10% of total Company sales for fiscal 2020.   50     Disaggregated revenue:   The following tables present details deemed most relevant to the users of the financial statements for the years ended June 30, 2021 and June 30, 2020.   Net sales by product group for the year ended June 30, 2021 is summarized as follows:                       Elimination of               Manufacturing     Distribution     Intercompany Sales     Total   Industrial   $ 22,621     $ 5,494     $ ( 4,661 )   $ 23,454   Land-based transmissions     52,441       26,003       ( 20,023 )     58,421   Marine and propulsion systems     116,371       59,276       ( 48,404 )     127,243   Other     77       9,448       ( 62 )     9,463   Total   $ 191,510     $ 100,221     $ ( 73,150 )   $ 218,581     Net sales by product group for the year ended June 30, 2020 is summarized as follows:                       Elimination of               Manufacturing     Distribution     Intercompany Sales     Total   Industrial   $ 24,143     $ 5,634     $ ( 3,434 )   $ 26,343   Land-based transmissions     63,523       25,699       ( 26,525 )     62,697   Marine and propulsion systems     139,833       59,212       ( 46,544 )     152,501   Other     66       5,279       ( 48 )     5,297   Total   $ 227,565     $ 95,824     $ ( 76,551 )   $ 246,838       K. STOCK-BASED COMPENSATION   In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”). The 2020 Directors' Plan retains the features of the 2010 Directors' Plan, as well as allows non-employee Directors to elect to receive all or a portion of their base cash retainer in the form of restricted stock. Benefits under the 2020 Directors’ Plan may be granted, awarded or paid in any one or a combination of stock options, restricted stock awards, or cash-settled restricted stock units. There is reserved for issuance under the 2020 Directors’ Plan an aggregate of 750,000 shares of the Company's common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.   In fiscal 2019, the Company adopted the Twin Disc, Incorporated 2018 Long-Term Incentive Plan (the “2018 LTI Plan”). Benefits under the 2018 LTI Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. There is reserved for issuance under the Plan an aggregate of 850,000 shares of the Company’s common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.   In fiscal 2011, the Company adopted the Twin Disc, Incorporated 2010 Stock Incentive Plan for Non-Employee Directors (the “2010 Directors’ Plan”), a plan to grant non-employee directors equity-based awards up to 250,000 shares of common stock, and the Twin Disc, Incorporated 2010 Long-Term Incentive Compensation Plan (the “2010 Employee Incentive Plan”), a plan under which officers and key employees may be granted equity-based awards up to 650,000 shares of common stock. Equity-based awards granted under these plans include performance shares and restricted stock.   51     Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are issued at the target level of performance):       2021     2020   2020 Directors' Plan     666,913       -   2018 LTI Plan     103,289       492,591     Performance Stock Awards ( “ PSA ” )   In fiscal 2021 and 2020, the Company granted a target number of 265,256 and 131,688 PSAs, respectively, to various employees of the Company, including executive officers.   The PSAs granted in fiscal 2021 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average free cash flow (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2023. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and free cash flow for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 397,884 . Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.   The PSAs granted in fiscal 2020 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual Earnings Per Share (“EPS”) (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2022. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 184,766 . Based upon actual results to date, the Company is not currently accruing compensation expense for these PSAs.   There were 388,433 and 167,848 unvested PSAs outstanding at June 30, 2021 and 2020, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. The compensation expense (benefit) for the year ended June 30, 2021 and 2020, related PSAs, was $ 491 and ($ 368 ), respectively. The tax benefit (expense) from compensation expense (benefit) for the year ended June 30, 2021 and 2020, related PSAs, was $ 116 and ($ 87 ), respectively. The weighted average grant date fair value of the unvested awards at June 30, 2021 was $ 7.50 . At June 30, 2021, the Company had $ 2,432 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2021 and 2020 awards. The total fair value of performance stock awards vested in fiscal 2021 and fiscal 2020 was $ 0 and $ 167 , respectively.   Restricted Stock Awards ( “ RS ” )   The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years. During fiscal 2021 and 2020, the Company granted 251,804 and 180,379 service based restricted shares, respectively, to employees and non-employee directors in each year. A total of 6,809 and 20,511 shares of restricted stock were forfeited during fiscal 2021 and 2020, respectively. There were 379,095 and 231,379 unvested shares outstanding at June 30, 2021 and 2020, respectively. Compensation expense of $ 1,335 and $ 1,200 was recognized during the year ended June 30, 2021 and 2020, respectively, related to these service-based awards. The tax benefit from compensation expense for the year ended June 30, 2021 and 2020, related to these service-based awards, was $ 315 and $ 283 , respectively. The total fair value of restricted stock grants vested in fiscal 2021 and 2020 was $ 533 and $ 1,241 , respectively. As of June 30, 2021, the Company had $ 1,333 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.   Restricted Stock Unit Awards ( “ RSU ” )   Under the 2018 Long Term Incentive Plan, the Company has been authorized to issue RSUs. The RSUs entitle the employee to shares of common stock of the Company if the employee remains employed by the Company through a specified date, generally three years from the date of grant. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. There were 34,822 and 37,950 unvested RSUs outstanding at June 30, 2021 and June 30, 2020, respectively. Compensation expense of $ 328 and $ 326 was recognized during the year ended June 30, 2021 and 2020, respectively. The tax benefit from compensation expense for the year ended June 30, 2021 and 2020, related to these service-based awards, was $ 78 and $ 77 , respectively. The weighted average grant date fair value of the unvested awards at June 30, 2021 was $ 25.79 . As of June 30, 2021, the Company had $ 25 of unrecognized compensation expense related to RSUs which will be recognized over the next year.   52       L. ENGINEERING AND DEVELOPMENT COSTS   Engineering and development costs include research and development expenses for new products, development and major improvements to existing products, and other costs for ongoing efforts to refine existing products. Research and development costs charged to operations totaled $ 1,867 and $ 1,820 in fiscal 2021 and 2020, respectively. Total engineering and development costs were $ 8,535 and $ 10,998 in fiscal 2021 and 2020, respectively.       M. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS   The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic employees hired prior to October 1, 2003, and certain foreign employees. Domestic plan benefits are based on years of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company froze future accruals under domestic defined benefit pension plans. The Company's funding policy for the plans covering domestic employees is to contribute an actuarially determined amount which falls between the minimum required contribution and maximum amount that can be deducted for federal income tax purposes.   In addition, the Company has unfunded, non-qualified retirement plans for certain management employees and Directors. In the case of management employees, benefits are based on an annual credit to a bookkeeping account, intended to restore the benefits that would have been earned under the qualified plans, but for the earnings limitations under the Internal Revenue Code. In the case of Directors, benefits are based on years of service on the Board. All benefits vest upon retirement from the Company.   In addition to providing pension benefits, the Company provides other postretirement benefits, including healthcare and life insurance benefits for certain domestic retirees. All employees retiring after December 31, 1992, and electing to continue healthcare coverage through the Company's group plan, are required to pay 100 % of the premium cost.   The measurement date for the Company’s pension and postretirement benefit plans in fiscal 2021 and 2020 was June 30.   53     Obligations and Funded Status   The following table sets forth the Company's defined benefit pension plans’ and other postretirement benefit plans’ funded status and the amounts recognized in the Company's balance sheets and statement of operations and comprehensive loss as of June 30:                       Other       Pension     Postretirement       Benefits     Benefits       2021     2020     2021     2020   Change in benefit obligation:                                 Benefit obligation, beginning of year   $ 105,520     $ 107,322     $ 7,059     $ 7,451   Service cost     608       653       16       17   Interest cost     2,516       3,305       154       219   Prior service cost     65       -       -       -   Actuarial (gain) loss     ( 1,577 )     3,161       ( 395 )     211   Contributions by plan participants     114       93       269       352   Benefits paid     ( 8,546 )     ( 9,014 )     ( 1,001 )     ( 1,191 ) Benefit obligation, end of year   $ 98,700     $ 105,520     $ 6,102     $ 7,059                                     Change in plan assets:                                 Fair value of assets, beginning of year   $ 83,284     $ 87,291     $ -     $ -   Actual return on plan assets     15,325       3,541       -       -   Employer contribution     2,253       1,373       732       839   Contributions by plan participants     114       93       269       352   Benefits paid     ( 8,546 )     ( 9,014 )     ( 1,001 )     ( 1,191 ) Fair value of assets, end of year   $ 92,430     $ 83,284     $ -     $ -                                     Funded status   $ ( 6,270 )   $ ( 22,236 )   $ ( 6,102 )   $ ( 7,059 )                                   Amounts recognized in the balance sheet consist of:                           Other assets - noncurrent   $ 60     $ -     $ -     $ -   Accrued liabilities - current     ( 423 )     ( 276 )     ( 833 )     ( 1,081 ) Accrued retirement benefits - noncurrent     ( 5,907 )     ( 21,960 )     ( 5,269 )     ( 5,978 ) Net amount recognized   $ ( 6,270 )   $ ( 22,236 )   $ ( 6,102 )   $ ( 7,059 )                                   Amounts recognized in accumulated other comprehensive loss consist of (net of tax):                   Net transition obligation   $ 133     $ 158     $ -     $ -   Prior service cost     94       104       ( 487 )     ( 697 ) Actuarial net loss     31,563       43,548       160       463   Net amount recognized   $ 31,790     $ 43,810     $ ( 327 )   $ ( 234 )   The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year for the qualified defined benefit and other postretirement benefit plans are as follows:               Other       Pension     Postretirement       Benefits     Benefits   Net transition obligation   $ 37     $ -   Prior service cost     44       ( 275 ) Actuarial net loss     2,254       -   Net amount to be recognized   $ 2,335     $ ( 275 )   The accumulated benefit obligation for all defined benefit pension plans was approximately $ 98,700 and $ 105,520 at June 30, 2021 and 2020, respectively.   Information for pension plans with an accumulated benefit obligation in excess of plan assets :       June 30       2021     2020   Projected and accumulated benefit obligation   $ 53,780     $ 105,520   Fair value of plan assets     47,450       83,284     54     Components of Net Periodic Benefit Cost:       Pension Benefits       2021     2020   Service cost   $ 615     $ 648   Interest cost     2,516       3,304   Prior service cost     65       -   Expected return on plan assets     ( 4,552 )     ( 4,894 ) Amortization of transition obligation     40       35   Amortization of prior service cost     47       45   Amortization of actuarial net loss     3,246       2,982   Net periodic benefit cost   $ 1,977     $ 2,120         Other Postretirement Benefits       2021     2020   Service cost   $ 16     $ 17   Interest cost     154       219   Amortization of prior service cost     ( 274 )     ( 274 ) Net periodic benefit cost   $ ( 104 )   $ ( 38 )   Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal 2021 (Pre-tax):               Other               Postretirement       Pension     Benefits   Net loss   $ ( 12,464 )   $ ( 397 ) Amortization of transition asset     ( 40 )     -   Amortization of prior service (cost) benefit     ( 43 )     275   Amortization of net loss     ( 3,246 )     -   Total recognized in other comprehensive income     ( 15,793 )     ( 122 ) Net periodic benefit cost (benefit)     1,977       ( 104 ) Total recognized in net periodic benefit cost and other comprehensive income   $ ( 13,816 )   $ ( 226 )   Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal 2020 (Pre-tax):                         Other               Postretirement       Pension     Benefits   Net loss   $ 4,770     $ 211   Amortization of transition asset     ( 35 )     -   Amortization of prior service (cost) benefit     ( 45 )     275   Amortization of net loss     ( 2,978 )     -   Total recognized in other comprehensive income     1,712       486   Net periodic benefit cost (benefit)     2,120       ( 38 ) Total recognized in net periodic benefit cost and other comprehensive income   $ 3,832     $ 448     Additional Information   Assumptions                                 Other       Pension Benefits     Postretirement Benefits   Weighted average assumptions used to determine benefit obligations at June 30                                     2021     2020     2021     2020   Discount rate     2.63 %     2.49 %     2.47 %     2.37 % Expected return on plan assets     5.69 %     5.89 %               55                         Other       Pension Benefits     Postretirement Benefits   Weighted average assumptions used to determine net periodic benefit costs for years ended June 30                                     2021     2020     2021     2020   Discount rate     2.49 %     3.22 %     2.37 %     3.15 % Expected return on plan assets     5.89 %     6.04 %               The assumed weighted-average healthcare cost trend rate was 6.00 % in 2021, grading down to 5 % in 2025. A 1 % increase in the assumed health care cost trend would increase the accumulated postretirement benefit obligation by approximately $ 81 and the service and interest cost by approximately $ 2 . A 1 % decrease in the assumed health care cost trend would decrease the accumulated postretirement benefit obligation by approximately $ 71 and the service and interest cost by approximately $ 2 .   Plan Assets   The Company’s Benefits Committee (“Committee”), a non-board management committee, oversees investment matters related to the Company’s funded benefit plans. The Committee works with external actuaries and investment consultants on an ongoing basis to establish and monitor investment strategies and target asset allocations. The overall objective of the Committee’s investment strategy is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension plans. The Committee has established an Investment Policy Statement which provides written documentation of the Company’s expectations regarding its investment programs for the pension plans, establishes objectives and guidelines for the investment of the plan assets consistent with the Company’s financial and benefit-related goals, and outlines criteria and procedures for the ongoing evaluation of the investment program. The Company employs a total return on investment approach whereby a mix of investments among several asset classes are used to maximize long-term return of plan assets while avoiding excessive risk. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, and annual liability measurements.   The Company’s pension plan weighted-average asset allocations at June 30, 2021 and 2020 by asset category were as follows:       Target     June 30   Asset Category   Allocation     2021     2020   Equity securities     51 %     53 %     47 % Debt securities     40 %     38 %     44 % Real estate     9 %     9 %     9 %       100 %     100 %     100 %   Due to market conditions and other factors, actual asset allocation may vary from the target allocation outlined above. The U.S. pension plans held 98,211 shares of Company stock with a fair market value of $ 1,398 ( 1.5 % of total plan assets) at June 30, 2021 and 98,211 shares with a fair market value of $ 544 ( 0.7 % of total plan assets) at June 30, 2020.   The U.S. plans have a long-term return assumption of 5.90 %. This rate was derived based upon historical experience and forward-looking return expectations for major asset class categories. The weighted average long-term return across all plans is 5.69 %.   Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are classified into the following hierarchy:   Level I Unadjusted quoted prices in active markets for identical instruments Level II Unadjusted quoted prices in active markets for similar instruments, or   Unadjusted quoted prices for identical or similar instruments in markets that are not active, or   Other inputs that are observable in the market or can be corroborated by observable market data Level III Use of one or more significant unobservable inputs   56     The following table presents plan assets using the fair value hierarchy as of June 30, 2021:       Total     Level I     Level II     Level III   Cash and cash equivalents   $ 1,043     $ 1,043     $ -     $ -   Equity securities:                                 Company common stock (a)     1,398       1,398       -       -   Common stock (a)     18,201       18,201       -       -   Mutual funds (b)     9,366       9,366       -       -   Annuity contracts (c)     6,646       -       -       6,646   Total   $ 36,654     $ 30,008     $ -     $ 6,646   Investments Measured at Net Asset Value (d)     55,776                           Total   $ 92,430                             The following table presents plan assets using the fair value hierarchy as of June 30, 2020:       Total     Level I     Level II     Level III   Cash and cash equivalents   $ 920     $ 920     $ -     $ -   Equity securities:                                 Company common stock (a)     544       544       -       -   Common stock (a)     14,551       14,551       -       -   Mutual funds (b)     7,916       7,916       -       -   Annuity contracts (c)     6,095       -       -       6,095   Total   $ 30,026     $ 23,931     $ -     $ 6,095   Investments Measured at Net Asset Value (d)     53,258                           Total   $ 83,284                             (a) Common stock is valued at the closing price reported on the active market on which the individual securities are traded. These securities include U.S. equity securities invested in companies that are traded on exchanges inside the U.S. and international equity securities invested in companies that are traded on exchanges outside the U.S.   (b) Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Company’s funded benefit plans are open-end mutual funds that are registered with the Securities Exchange Commission. These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual funds held by the Company’s funded benefit plans are deemed to be actively traded.   (c) Annuity contracts represent contractual agreements in which payments are made to an insurance company, which agrees to pay out an income or lump sum amount at a later date. Annuity contracts are valued at fair value using the net present value of future cash flows.   (d) In accordance with ASC 820 - 10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at the end of the year.   The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that calculate fair value based on NAV per share practical expedient as of June 30, 2021 and June 30, 2020:       2021     2020   Fixed income funds   $ 31,627     $ 33,032   International equity securities     4,282       2,840   Real estate     7,747       7,186   Hedged equity mutual funds     12,120       10,200   Total   $ 55,776     $ 53,258     57     The following tables present a reconciliation of the fair value measurements using significant unobservable inputs (Level III) as of June 30, 2021 and 2020:                 2021     2020   Beginning balance   $ 6,095     $ 6,171   Actual return on plan assets:                 Relating to assets still held at reporting date     600       75   Purchases, sales and settlements, net     ( 49 )     ( 151 ) Ending balance   $ 6,646     $ 6,095     Cash Flows   Contributions The Company expects to contribute $ 733 to its defined benefit pension plans in fiscal 2021.   Estimated Future Benefit Payments   The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:               Other       Pension     Postretirement       Benefits     Benefits                     2022   $ 8,535     $ 843   2023     7,794       769   2024     7,433       693   2025     7,095       608   2026     6,865       544   Years 2027 - 2031     31,435       2,042     The Company does not expect to make any Part D reimbursements for the periods presented.   The Company sponsors defined contribution plans covering substantially all domestic employees and certain foreign employees. These plans provide for employer contributions based primarily on employee participation. The total expense under the plans was $ 2,162 and $ 1,949 in fiscal 2021 and 2020, respectively.       N. INCOME TAXES   United States and foreign (loss) income before income taxes and minority interest were as follows:       2021     2020   United States   $ ( 15,925 )   $ ( 29,332 ) Foreign     6,086       ( 14,408 )     $ ( 9,839 )   $ ( 43,740 )   58     The provision (benefit) for income taxes is comprised of the following:       2021     2020   Currently payable:                 Federal   $ 28     $ ( 149 ) State     49       30   Foreign     1,948       4,022         2,025       3,903   Deferred:                 Federal     15,554       ( 5,673 ) State     2,341       ( 860 ) Foreign     ( 240 )     ( 1,539 )       17,655       ( 8,072 )     $ 19,680     $ ( 4,169 )   The components of the net deferred tax asset as of June 30 are summarized in the table below.       2021     2020   Deferred tax assets:                 Retirement plans and employee benefits   $ 4,584     $ 7,934   Foreign tax credit carryforwards     7,609       7,429   Federal tax credits     1,801       1,585   State net operating loss and other state credit carryforwards     2,208       1,696   Federal net operating loss     6,506       1,607   Inventory     -       205   Reserves     1,670       1,056   Foreign NOL carryforwards     66       555   Accruals     871       823   Right of use assets - operating leases     3,674       3,920   Disallowed interest     982       418   Disallowed PPP expenses     -       1,320   Other assets     1,033       832         31,004       29,380   Valuation allowance     ( 24,420 )     -         6,584       29,380                     Deferred tax liabilities:                 Inventory     480       -   Property, plant and equipment     1,852       3,231   Intangibles     2,982       3,306   Long term operating lease obligations     3,622       3,855   Other liabilities     182       44         9,118       10,436                     Total net deferred tax (liabilities) assets   $ ( 2,534 )   $ 18,944     At June 30, 2021 the Company has net operating loss carryforwards (“NOLs”) of approximately $ 30,980 and $ 31,181 for federal and state income tax purposes which will expire at various dates from fiscal year 2023 – 2041.   Federal NOLs were generated subsequent to fiscal 2019 and have an indefinite carryover period. The Company has federal and state tax credit carryforwards of approximately $ 9,780 and $ 1,037 , respectively, which will expire at various dates from fiscal 2026 – 2041.   59     The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company has evaluated the likelihood of whether the net deferred tax assets would be realized and concluded that it is more likely than not that all of deferred tax assets would not be realized. Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $ 24,420 has been recorded for fiscal year 2021.   Following is a reconciliation of the applicable U.S. federal income taxes to the actual income taxes reflected in the statements of operations:               2021     2020                     U.S. federal income tax at 21%   $ ( 2,066 )   $ ( 9,185 ) Increases (reductions) in tax resulting from:                 Foreign tax items     552       236   State taxes     ( 440 )     ( 716 ) Change in prior year estimate     ( 1,138 )     ( 213 ) Nondeductible PPP loan expenses     ( 1,722 )     -   Research and development tax credits     ( 336 )     ( 412 ) Goodwill impairment     -       4,814   Unrecognized tax benefits     59       9   Stock compensation     252       ( 93 ) Rate changes     18       237   Deferred tax basis adjustments     42       ( 138 ) GILTI inclusion     -       1,220   Valuation allowance     24,420       -   Other, net     39       72       $ 19,680     $ ( 4,169 )   On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the Internal Revenue Code. The Tax Act is generally applicable for tax years beginning after December 31, 2017, which is the Company’s fiscal year 2018. However, several provisions of the Tax Act have differing effective dates, meaning these provisions did not impact the Company’s financial statements until fiscal year 2019. The provisions impacting the Company’s fiscal year 2019 financial statements include the global intangible low taxed income (“GILTI”) income and foreign-derived intangible income (“FDII”) deduction and limitations on the deductibility of executive compensation.   Changes in the tax treatment of certain items have been reflected during the current quarter, chief among them the impact on the effective tax rate related to the non-taxable treatment of $ 8,200 of forgiven PPP loans included in net loss, as well as the impact of deferred employer Social Security tax payments.   Executive Compensation Limitations: The Tax Act substantially modifies the limitation on corporate deductibility of executive compensation under Section 162 (m) of the Code. Section 162 (m) limits the deduction for compensation paid by a publicly held corporation to certain of its executive employees to $1,000 per year. The Tax Act has amended the definition of “covered employee” to correspond to the general SEC reporting requirements for named executive officers. These are the corporation’s principal executive officer, principal financial officer, and the next three highest-paid executive officers. Most significantly, the Tax Act has eliminated the exemptions for commissions and performance-based compensation. This did not have an impact on the Company’s effective tax rate in fiscal year 2021 and 2020.   60     Global Intangible Low Taxed Income ( “ GILTI ” ): The Tax Act changed the foreign source income calculations and related foreign tax credit amounts. The GILTI require 10% domestic shareholders (“U.S. Shareholders”) of controlled foreign corporations (“CFC’s”) to include in gross income annually the U.S. Shareholders’ pro rata share of GILTI for the year. The High Tax Exception (“HTE") rules were finalized and applicable for the Company during fiscal year 2021. Accordingly, the Company may exclude from the GILTI inclusion tested income from tested units with an effective tax rate greater than 18.9%. The Company was able to take advantage of this high tax exception, which resulted in zero GILTI inclusion in the Company’s effective tax rate for fiscal year 2021. In fiscal year 2020, the GILTI inclusion was $ 1,220 .   Foreign Derived Intangible Income ( “ FDII ” ): The Tax Act provides companies with a new permanent deduction. An incentive for C corporations to generate revenue from serving foreign markets, the provision applies a preferential tax rate to eligible income. The new tax law assumes a fixed rate of return on a corporation’s tangible assets. Any remaining income is deemed to be generated by intangible assets. This did not have an impact on the Company’s effective tax rate in fiscal year 2021 and 2020.   The Company has not provided additional U.S. income taxes on cumulative earnings of its consolidated foreign subsidiaries that are considered to be reinvested indefinitely. The Company reaffirms its position that the earnings of those subsidiaries remain permanently invested and has no plans to repatriate funds from any permanently reinvested subsidiaries to the U.S. for the foreseeable future. These earnings relate to ongoing operations and were approximately $ 10,871 and $ 1,729 at June 30, 2021 and June 30, 2020, respectively. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits.   Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are 2017 through 2021 for our major operations in Belgium, Japan, Netherlands, Singapore and Australia. The tax years open to examination in the U.S. are for years subsequent to fiscal 2017.   The Company has approximately $ 778 and $ 918 of unrecognized tax benefits as of June 30, 2021 and June 30, 2020, respectively, which, if recognized, would impact the effective tax rate. During the fiscal year the amount of unrecognized tax benefits decreased primarily due to settlements with tax authorities. No material changes are expected to the reserve during the next 12 months. The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits in income tax expense.   Below is a reconciliation of beginning and ending amount of unrecognized tax benefits as of June 30:       2021     2020   Unrecognized tax benefits, beginning of year   $ 918     $ 938   Additions based on tax positions related to the prior year     -       17   Additions based on tax positions related to the current year     66       87   Reductions based on tax positions related to the prior year     ( 21 )     ( 19 ) Subtractions due to statutes closing     -       ( 105 ) Settlements with taxing authorities     ( 185 )     -   Unrecognized tax benefits, end of year   $ 778     $ 918     Substantially all of the Company’s unrecognized tax benefits as of June 30, 3021, if recognized, would affect the effective tax rate. As of June 30, 2021 and 2020, the amounts accrued for interest and penalties totaled $ 141 and $ 185 , respectively, and are not included in the reconciliation above.       O. CONTINGENCIES   The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, are not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Company’s results of operations, financial position or cash flows, either individually or in the aggregate.   61       P. RESTRUCTURING OF OPERATIONS AND INCOME FROM EXTINGUISHMENT OF LOAN   Restructuring expenses   The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends in certain of the Company’s markets since the fourth quarter of fiscal 2015. These programs primarily involved the reduction of workforce in several of the Company’s manufacturing locations, under a combination of voluntary and involuntary programs. During the fourth quarter of fiscal 2021, the Company undertook a series of steps to accelerate its focus on its core competencies, improve its fixed cost structure, and monetize some of its under-utilized assets.   With regard to its Belgian operations, on June 30, 2021, the Company announced a new phase in its restructuring plans. Under this plan, the Belgian operation’s workforce will be reduced by 23 employees. This reduction in force resulted in an accrual of $ 2,200 , pertaining to the Company’s current estimate for the payment of severance benefits, which is expected to be completed by December 2022. The accrual will be adjusted as negotiations with the union representing certain of the affected employees commence and progress. The action was taken to allow the Belgian operation to focus resources on core manufacturing processes, while allowing for savings on the outsourcing of non-core processes. The Company anticipates annual pre-tax savings upon completion of the restructuring of approximately $ 1,600 .   Total restructuring charges relating to streamlining operations amounted to $ 3,110 and $ 1,953 in fiscal 2021 and 2020, respectively. Restructuring activities since June 2015 have resulted in the elimination of 252 full-time employees in the manufacturing segment. Accumulated costs to date under these programs within the manufacturing segment through June 30, 2021 were $ 15,515 .   Assets held for sale   To improve its fixed cost structure and monetize some of its under-utilized assets, the Company commenced the active marketing of three of its real estate properties, namely, its corporate headquarters in Racine, its propeller machining plant and office in Switzerland, and a spare warehouse in Italy during the fourth quarter of fiscal 2021. Such actions required the Company to reclassify these assets from Property, Plant and Equipment to Assets Held for Sale, at fair value less costs to sell, or net book value, whichever is lower. Fair value was determined using real estate broker estimates, and would be classified as Level 3 in the fair value hierarchy. This assessment of fair value resulted in the Company recognizing a write-down of the carrying value of its corporate headquarters by $ 4,267 .   On August 17, 2021, the Company signed an agreement to sell the propeller machining plant and office in Switzerland and received 600 Swiss francs as partial proceeds.   The following is a roll-forward of restructuring activity:   Accrued restructuring liability, June 30, 2019   $ -   Additions     5,138   Payments and adjustments     ( 5,054 ) Accrued restructuring liability, June 30, 2020     84   Additions     7,377   Payments and adjustments     ( 5,109 ) Accrued restructuring liability, June 30, 2021   $ 2,352     Income from extinguishment of loan   As discussed in Note G, Debt, on June 16, 2021, the Company received formal forgiveness of its PPP Loan in the amount of $ 8,200 . In accordance with ASC 470 Debt and ASC 450 - 30 Gain contingency , the Company recorded $ 8,200 in income from extinguishment of loan in its condensed consolidated statement of operations in fiscal 2021.   62       Q. EARNINGS PER SHARE   The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect.  Restricted stock award recipients under the 2010 LTI Plan have a non-forfeitable right to receive dividends declared by the Company, and are therefore included in computing earnings per share pursuant to the two -class method.    The components of basic and diluted earnings per share were as follows:       2021     2020   Basic:                 Net loss   $ ( 29,519 )   $ ( 39,571 ) Less: Net earnings attributable to noncontrolling interest     ( 200 )     ( 246 ) Less: Undistributed earnings attributable to unvested shares     -       -   Net loss available to Twin Disc shareholders     ( 29,719 )     ( 39,817 )                   Weighted average shares outstanding - basic     13,247       13,153                     Basic Loss Per Share:                 Net loss per share - basic   $ ( 2.24 )   $ ( 3.03 )                   Diluted:                 Net loss   $ ( 29,519 )   $ ( 39,571 ) Less: Net earnings attributable to noncontrolling interest     ( 200 )     ( 246 ) Less: Undistributed earnings attributable to unvested shares     -       -   Net loss available to Twin Disc shareholders     ( 29,719 )     ( 39,817 )                   Weighted average shares outstanding - basic     13,247       13,153   Effect of dilutive stock awards     -       -   Weighted average shares outstanding - diluted     13,247       13,153                     Diluted Loss Per Share:                 Net loss per share - diluted   $ ( 2.24 )   $ ( 3.03 )   The following potential common shares were excluded from diluted EPS for the year ended June 30, 2021 as the Company reported a net loss: 388,433 related to the Company’s unvested PSAs, 379,095 related to the Company’s unvested RS awards, and 34,822 related to the Company’s unvested RSUs.   The following potential common shares were excluded from diluted EPS for the year ended June 30, 2020 as the Company reported a net loss: 167,848 related to the Company’s unvested PSAs, 231,379 related to the Company’s unvested RS awards, and 37,950 related to the Company’s unvested RSUs.   63       R. DERIVATIVE FINANCIAL INSTRUMENTS   The Company reports all derivative instruments on its consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes.   As a global organization, the Company faces exposure to market risks, such as fluctuations in foreign currency exchange rates, interest rates and commodity prices. To manage the volatility relating to these exposures, the Company enters into various derivative instruments from time to time under its risk management policies. The Company designates derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its policy. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. The Company’s practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if it determines the underlying forecasted transaction is no longer probable of occurring.   Interest Rate Swaps Designated as Cash Flow Hedges   The primary purpose of the Company’s cash flow hedging activities is to manage the potential changes in value associated with interest payments on the Company’s LIBOR-based indebtedness. The Company records gains and losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive loss to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net earnings, at which time these gains and losses are recognized in interest expense on its consolidated statements of operations and comprehensive loss. Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows. These contracts generally have original maturities of greater than twelve months.   Net unrealized after-tax losses related to cash flow hedging activities that were included in accumulated other comprehensive loss were $ 678 and $ 1,104 for the years ended June 30, 2021 and 2020, respectively. The unrealized amounts in accumulated other comprehensive loss will fluctuate based on changes in the fair value of open contracts during each reporting period.   The Company estimates that $ 346 of net unrealized losses related to cash flow hedging activities included in accumulated other comprehensive loss will be reclassified into earnings within the next twelve months.   Derivatives Designated as Net Investment Hedges   The Company is exposed to foreign currency exchange risk related to its investment in net assets in foreign countries. As discussed in Note G, Debt, during the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan, with a notional amount of €13,000, as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign subsidiaries. All changes in fair value of the euro revolver were then reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. Net unrealized after-tax income related to net investment hedging activities that were included in accumulated other comprehensive loss were $ 334 and $ 0 for the years ended June 30, 2021 and 2020, respectively.   Foreign Currency Forward Contracts Not Designated as Hedges   The Company primarily enters into forward exchange contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. These contracts are highly effective in hedging the cash flows attributable to changes in currency exchange rates. Gains and losses resulting from these contracts offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts generally coincide with the settlement dates of the related transactions. Gains and losses on these contracts are recorded in other expense, net in the consolidated statement of operations and comprehensive loss as the changes in the fair value of the contracts are recognized and generally offset the gains and losses on the hedged items in the same period. The primary currency to which the Company was exposed in fiscal 2021 and 2020 was the euro. At June 30, 2021 and 2020, there were no significant forward exchange contracts outstanding.   64     Other Derivative Instruments   The Company does not utilize commodity price hedges to manage commodity price risk exposure. Likewise, the Company does not hedge the translation exposure represented by the net assets of its foreign subsidiaries.   Fair Value of Derivative Instruments   The Company’s interest rate swaps and foreign currency forward contracts are recorded at fair value on the consolidated balance sheets using a discounted cash flow analysis that incorporates observable market inputs. These market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained from pricing data quoted by various banks, third -party sources and foreign currency dealers involving identical or comparable instruments (Level 2 ).   Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings on some of the Company’s counterparties may change during the term of the financial instruments. The Company closely monitors its counterparties’ credit ratings and, if necessary, will make any appropriate changes to its financial instruments. The fair value generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date.   As discussed in Note G, Debt, the Company's euro denominated Revolving Loan approximates fair value at June 30, 2021 and June 30, 2020. If measured at fair value in the financial statements, it would be classified as Level 2 in the fair value hierarchy.   The fair value of derivative instruments included in the consolidated balance sheets at June 30 were as follows:     Balance Sheet Location   2021     2020   Derivatives designated as hedges:                   Interest rate swaps Accrued liabilities   $ 346     $ 392   Interest rate swaps Other long-term liabilities     542       1,052     The impact of the Company’s derivative instruments on the consolidated statement of operations and comprehensive loss for the years ended June 30 was as follows:     Statement of Comprehensive                   Loss Location   2021     2020   Derivatives designated as hedges:                   Interest rate swap Interest expense   $ 399     $ 171   Interest rate swap Unrealized gain (loss) on hedges     425       ( 595 ) Net investment hedge Unrealized gain (loss) on hedges     335       -                       Derivatives not designated as hedges:                   Foreign currency forward contracts Other income (expense), net   $ ( 15 )   $ ( 9 )   65       TWIN DISC, INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended June 30, 2021 and 2020 (in thousands)       Balance at     Charged to             Balance at       Beginning     Costs and             End of   Description   of Period     Expenses     Adjustments (1)     Period                                     2021:                                 Allowance for losses on accounts receivable   $ 1,740     $ 346     $ 216     $ 1,870                                     Reserve for inventory obsolescence   $ 9,863     $ 1,178     $ 762     $ 10,279                                     Deferred tax valuation allowance   $ -     $ 24,420     $ -     $ 24,420                                     2020:                                 Allowance for losses on accounts receivable   $ 1,582     $ 399     $ 241     $ 1,740                                     Reserve for inventory obsolescence   $ 10,463     $ 1,532     $ 2,132     $ 9,863     ( 1 ) Activity primarily represents amounts written-off during the year, along with other adjustments (primarily foreign currency translation adjustments).   66       EXHIBIT INDEX   TWIN DISC, INCORPORATED 10-K for Year Ended June 30, 2021 Exhibit Description Included Herewith 3a) Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of the Company's Form 8‑K dated December 6, 2007). File No. 001-07635.   3b) Articles of Amendment to the Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of the Company's Form 8‑K dated October 29, 2020). File No. 001-07635.   3b) Restated Bylaws of Twin Disc, Incorporated, as amended through October 29, 2020 (Incorporated by reference to Exhibit 3.2 of the Company's Form 8‑K dated October 29, 2020). File No. 001-07635.         Exhibit 10 Material Contracts Included Herewith a) Director Tenure and Retirement Policy X b) The 2020 Stock Incentive Plan for Non-Employee Directors (Incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on October 29, 2020). File No. 001-07635.   c) The Twin Disc, Incorporated 2018 Long-Term Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 6, 2018). File No. 001-07635.   d) The Twin Disc, Incorporated 2021 Long-Term Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 10, 2021). File No. 001-07635.   e) Form of Restricted Stock Award Grant Agreement for restricted stock grants on May 1, 2019 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated May 3, 2019). File No. 001-07635.   f) Form of Performance Stock Award Grant Agreement for award of performance shares on May 1, 2019 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated May 3, 2019). File No. 001-07635.   g) Form of Performance Stock Award Grant Agreement for award of performance shares on August 1, 2019 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 7, 2019). File No. 001-07635.   h) Form of Restricted Stock Award Grant Agreement for restricted stock grants on August 1, 2019 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 7, 2019). File No. 001-07635.   i) Form of Performance Stock Award Grant Agreement for award of performance shares on October 31, 2019 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated November 5, 2019). File No. 001-07635.   j) Form of Restricted Stock Award Grant Agreement for restricted stock grants on October 31, 2019 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated November 5, 2019). File No. 001-07635.   k) Form of Performance Stock Award Grant Agreement for award of performance shares on August 6, 2020 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 12, 2020). File No. 001-07635.   l) Form of Restricted Stock Award Grant Agreement for restricted stock grants on August 6, 2020 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 12, 2020). File No. 001-07635.     67     m) Form of Performance Stock Award Grant Agreement for award of performance shares on August 4, 2021 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 10, 2021). File No. 001-07635.   n) Form of Restricted Stock Unit Grant Agreement for restricted stock units granted on August 4, 2021 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 10, 2021). File No. 001-07635.   o) Twin Disc, Incorporated Supplemental Executive Retirement Plan, amended and restated as of July 29, 2010 (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated August 4, 2010). File No. 001-07635.   p) Forms of Change in Control Severance Agreements (Incorporated by reference to Exhibits 10.4 , 10.5 and 10.6 of the Company’s Form 8-K dated August 6, 2018). File No. 001-07635.   q) Form of Indemnity Agreement (Incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K dated August 2, 2005). File No. 001-07635.   r) Credit Agreement Between Twin Disc, Incorporated and BMO Harris Bank, dated June 29, 2018 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   s) Amendment and Assignment of Revolving Loan Note between Bank of Montreal and BMO Harris Bank, N.A., dated June 29, 2018. (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   t) Assignment of and Amendment to Security Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Twin Disc, Incorporated, dated June 29, 2018. (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   u) Assignment of and Amendment to IP Security Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Twin Disc, Incorporated, dated June 29, 2018. (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   v) Assignment of and Amendment to Pledge Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., Twin Disc, Incorporated, and Mill-Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   w) Assignment of and Amendment to the Guaranty Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Mill-Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   x) Assignment of and Amendment to Guarantor Security Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Mill-Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   y) Assignment of and Amendment to Negative Pledge Agreement By and Among Twin Disc, Incorporated, Bank of Montreal, and BMO Harris Bank N.A., dated June 29, 2018. (Incorporated by reference to Exhibit 10.8 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.     68     z) Collateral Assignment of Rights under Purchase Agreement from Twin Disc, Incorporated and Twin Disc NL Holding B.V. in favor of BMO Harris Bank N.A., dated July 2, 2018. (Incorporated by reference to Exhibit 10.9 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635.   aa) First Amendment to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated September 21, 2018). File No. 001-07635.   bb) Amendment No. 2 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated March 6, 2019). File No. 001-07635.   cc) Amended and Restated Term Note between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated March 6, 2019). File No. 001-07635.   dd) Amendment No. 3 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated January 30, 2020). File No. 001-07635.   ee) Promissory Note dated April 17, 2020, entered into by Twin Disc, Incorporated, as borrower, for the benefit of BMO Harris Bank, N.A., as lender (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated April 21, 2020). File No. 001-07635.   ff) Amendment No. 4 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated April 21, 2020). File No. 001-07635.   gg) Amendment No. 5 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated July 28, 2020). File No. 001-07635.   hh) Forbearance Agreement and Amendment No. 6 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated January 29, 2021). File No. 001-07635.   ii) Second Amended and Restated Revolving Note between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated July 28, 2020). File No. 001-07635.   jj) Form of Deposit Account Control Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.3 of the Company’s Form 8-K dated July 28, 2020). File No. 001-07635.   kk) ISDA Master Agreement and Schedule, dated April 11, 2019, between Twin Disc, Incorporated and Bank of Montreal (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated April 26, 2019). File No. 001-07635.   ll) Confirmation of swap transaction, dated April 22, 2019, from Bank of Montreal to Twin Disc, Incorporated (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated April 26, 2019). File No. 001-07635.     69     Exhibit Description Herewith 21 Subsidiaries of the Registrant X 23a Consent of Independent Registered Public Accounting Firm X 24 Power of Attorney X 31a Certification X 31b Certification X 32a Certification pursuant to 18 U.S.C. Section 1350 X 32b Certification pursuant to 18 U.S.C. Section 1350 X       101.INS Inline XBRL Instance Document, filed herewith   101.SCH Inline XBRL Schema Document, filed herewith   101.CAL Inline XBRL Calculation Linkbase Document, filed herewith   101.DEF Inline XBRL Definition Linkbase Document, filed herewith   101.LAB Inline XBRL Label Linkbase Document, filed herewith   101.PRE Inline XBRL Presentation Linkbase, filed herewith   104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)     70     SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.     September 2, 2021 TWIN DISC, INCORPORATED       By: /s/ JOHN H. BATTEN   John H. Batten   Chief Executive Officer     Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.    September 2, 2021 By: /s/ DAVID B. RAYBURN   David B. Rayburn   Chairman of the Board     September 2, 2021 By: /s/ JOHN H. BATTEN   John H. Batten   Chief Executive Officer     September 2, 2021 By: /s/ JEFFREY S. KNUTSON   Jeffrey S. Knutson   Vice President - Finance, Chief Financial Officer, Treasurer and Secretary     September 2, 2021 By: /s/ DEBBIE A. LANGE   Debbie A. Lange   Corporate Controller (Chief Accounting Officer)     September 2, 2021 Michael Doar, Director   Janet P. Giesselman, Director David W. Johnson, Director Michael C. Smiley, Director   Harold M. Stratton II, Director           By: /s/ JEFFREY S. KNUTSON   Jeffrey S. Knutson   Vice President - Finance, Chief Financial Officer, Treasurer and Secretary (Attorney in Fact)   71